Pay equity it’s a term you cannot fail to have registered in recent years. As organizations turn increasing attention to ESG imperatives, pay equity — sometimes referred to as wage equity — needs to be on your radar.

An ESG strategy isn’t 360° unless it addresses issues relating to your employee and labor relations policies. ESG performance is intrinsically linked to employee satisfaction, and both have a symbiotic relationship with your brand, reputation and investor satisfaction indices.

Pay equity is therefore increasing in prominence in line with the growing focus on ESG. How can you tackle the issue effectively?

 

Definition of Pay Equity

What is meant by pay equity or wage equity? It means equally compensating all employees who do the same work or similar duties — regardless of race, gender, disability, LGTBQ+ and other criteria. Wage equity accounts for tenure, experience and performance, but seeks to dismantle discrimination from the wage-setting system.

Pay equity can be assessed either at a company level or a role level. Because the roles undertaken by many women and people of color have traditionally been lower-paid ones, a whole-company picture of pay equity can be misleading. It can be skewed by, for instance, an organization with a high proportion of manual, clerical or service-oriented roles.

 

Why Is Pay Equity a Hot Topic?

The need to implement — and demonstrate, more of which later — pay or wage equity is becoming harder for U.S. employers to ignore. Despite growing federal and state legislation, there’s clearly more to do.

Looking at the question of what pay equity is, only half the picture. We also need to ask: what is the purpose of pay equity? Why is a focus on, and legislation around, pay equity necessary? The American Association of University Women’s (AAUW) published a thought-provoking report, The Simple Truth About the Gender Pay Gap. It notes that “over half a century after pay discrimination became illegal in the United States, a persistent pay gap between men and women continues to hurt our nation’s workers and our national economy.” Women working full time in the U.S. are paid 83 cents for every dollar earned by men.

And wage equity (or inequity) isn’t just a gender issue. Non-white workers in the U.S. still receive lower wages than their white counterparts, with black men having “the largest ‘uncontrolled pay gap’ relative to white men,” earning 87 cents for every dollar a white man earned, according to research published in 2019.

A lack of pay equity is a problem that affects people with disabilities too. The Americans with Disabilities Act (ADA) prohibits employers from discriminating against a qualified individual based on disability regarding employee compensation. Yet, research continues to show that earnings gaps remain between employees with disabilities and those without.

It’s not an issue confined to our working lives either — a lack of pay equity, whether related to gender, race or disability, has long-term implications. Lower salaries mean lower Social Security payments and pensions accrual — the AAUW reports that, for instance, women receive only 70% of men’s overall retirement income.

 

What Are the Rules on Wage Equity?

The U.S. takes a slightly different path to many other countries when assessing pay equity. Countries like the UK, Canada and Australia tend to have legislation focused on average pay between two groups; all working men and all working women, for instance. In the U.S., laws are focused on mandating fair compensation for employees doing substantially similar work.

In the U.S., the federal Equal Pay Act sets employers’ minimum responsibilities on wage equity. There are 44 states with individual pay equity laws. Most state laws go further than federal requirements, requiring employers to pay men and women equally for “substantially similar” work rather than for “equal” work.

As we’ve noted earlier, wage equity is an issue that transcends gender, and many states’ fair pay requirements also go beyond gender to include race and other protected characteristics. Most mandate greater transparency on pay and put in place measures to protect employees who attempt to call out wage equity issues.

 

Reporting Requirements Ramping Up

All U.S. employers with more than 100 employees, as well as federal contractors with more than 50 employees and over $50,000 in federal contracts, must file an EEO-1 Component 1 report by March 31 each year. The report collects employment data by race/ethnicity, sex and job categories.

As with state laws, state-mandated reporting requirements also tend to exceed federal ones, so depending on the states you operate in, you are likely to face more rigorous reporting requirements than those mandated by federal law.

From an organizational point of view, these reporting obligations are not always helpful. Some fail to make pay data categories relevant. For instance, EEO-1 Component 2 demands that employers report pay data based on categories like “craft worker” that are only relevant in specific industries.

Data reporting requirements that are out of line with the ways employers capture data can place a heavy burden on organizations trying to gather, analyze and compliantly report on pay.

 

The Role of the Board in Managing Wage Equity

As with other areas of ESG strategy, the board has ultimate accountability for pay equity. And it should matter to them — equal pay is a vital tool in attracting and retaining the diverse workforce organizations need to drive diversity of thought and innovation and in building businesses that resonate with customers, investors and other stakeholders.

Not only does the board determine the direction on ESG and wage equity, they also set the corporate cultural tone. Whether it’s leading by example by ensuring gender diversity within the board and ensuring executive pay is in line with ESG ambitions or working to create a more equal company culture, or dismantling the lavender ceiling, there’s no doubt that the board’s role in pay equity is pivotal.

 

Priorities in Tackling Pay Equity

So you’ve established that wage equity is a core priority for your organization. How do you put this into practice?

Conducting a pay audit is an excellent first step. From here, you can identify areas that need action and pinpoint priorities.

Collecting pay data can be a challenge — and as we noted earlier, reporting requirements are not always helpful in aligning data demands with the realities of corporate structures and reporting. Deep dives into pay inequities need accurate, granular data and a robust reporting framework that enables you to compare like with like.

It’s important that you align any pay equity ambitions and concerns with your wider stated aims around ESG. And that your broader workplace policies and procedures, not only on pay, are designed with wage equity and ESG in-built to facilitate understanding, compliance and reporting.

If you would like to learn more about the importance of ESG, the broader concept that encompasses pay equity alongside a wealth of business-critical concerns, visit our dedicated website for more on the importance of ESG monitoring and reporting, best practices and the areas you should prioritize.